[Federal Register Volume 70, Number 175 (Monday, September 12, 2005)]
[Notices]
[Pages 53825-53828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4948]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52379; File No. SR-CHX-2005-23]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval to Proposed 
Rule Change Relating to the Assignment of Securities to Specialists

September 2, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 25, 2005, the Chicago Stock Exchange, Inc. (the ``CHX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the CHX. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons, and is approving the proposal on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 1 of Article XXX relating to 
Registration and Appointment to permit its Committee on Specialist 
Assignment and Evaluation (``CSAE'') to, in special circumstances, 
assign securities \3\ to a specialist firm without the firm first 
identifying a particular co-specialist to trade the securities, so long 
as the specialist firm promptly provides the CSAE with the name of the 
co-specialist that would trade the issues, and the CSAE concludes that 
the co-specialist is qualified to trade the issues. Below is the text 
of the proposed rule change, as amended. Proposed new language is 
italicized; proposed deletions are in [brackets].
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    \3\ The Commission notes that the Exchange uses the terms 
``security(ies), stock(s) and issue(s)'' interchangeably.
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ARTICLE XXX

Specialists

Registration and Appointment
    Rule 1. No change.
    * * * Interpretations and Policies:
.01 Committee on Specialist Assignment and Evaluation
* * * * *

[[Page 53826]]

II. Assignment Procedures
    When a security is to be assigned or reassigned, the Committee will 
notify all specialist units and invite applications. This notice will 
include all relevant facts about the security. If the Committee 
believes that special qualifications should be sought in the successful 
applicant, the Committee after satisfying itself that these are 
reasonable and not exclusionary, should direct that they be included in 
the notice.
    It should be noted that assignments are made to specialist units 
but that, except as provided below in paragraph 6, the specialist unit 
must indicate the individual co-specialist who will be registered in 
that stock. The registration of a co-specialist, however, does not 
diminish the responsibility of the specialist unit for the stock 
assigned to it.
* * * * *
    1. Applications. In applying, a specialist unit should state the 
reasons why it believes the stock should be assigned to it. A standard 
application form is available from the Exchange and should be used for 
this purpose. Except as otherwise provided in paragraph 6, below, 
t[T]he application must, at a minimum, include the name and background 
of the co-specialist who will normally be trading the security and his 
ability and experience relative to the issue being applied for. Also, 
if any special or unique characteristics of the security have been 
identified by the Committee, such as unusually high capital 
requirements or institutional participation making trading difficult, 
the applicant should specifically note and comment on its ability to 
deal with the special characteristics.
* * * * *
    6. Assignment process when posting of large groups of stocks. If 
circumstances require the Exchange to allocate more than 100 stocks at 
any specific time, the Exchange recognizes that it may be difficult for 
a specialist firm to identify the specific co-specialist who would be 
assigned to trade each of the issues for which that firm seeks an 
assignment. In those circumstances, the CSAE may make a temporary 30-
day assignment to a specialist firm (based on the firm's overall 
demonstrated ability, experience and financial responsibility, as well 
as the overall best interests of the Exchange). The CSAE may make that 
temporary assignment final if: (1) The specialist firm, within 15 days 
of the temporary assignment, provides the CSAE with the identification 
of the individual co-specialist who will be trading the stock(s); and 
(2) the CSAE, after evaluating that co-specialist's demonstrated 
ability and experience, finds that the co-specialist is qualified to 
trade the stock(s). If the CSAE determines that the co-specialist is 
not qualified to trade the stock(s), the stock(s) shall be immediately 
posted for assignment.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule changes and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange states that the Exchange's CSAE is responsible for 
assigning securities to specialist firms for trading.\4\ Under current 
Interpretation and Policy .01 of Rule 1 of Article XXX, each 
participant firm seeking to act as a CHX specialist in a particular 
issue is required to identify, during the application process, the 
individual co-specialist who will be trading that security.\5\ The 
Exchange believes that this process works efficiently when the CSAE is 
assigning a few securities at a time.
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    \4\ See Article IV, Rule 6, and Article XXX, Rule 1.
    \5\ See Article XXX, Rule 1.01.II.1.
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    On rare occasions, however, the CSAE may need to assign larger 
groups of securities. In those situations, the Exchange represents that 
it may be difficult and impractical for specialist firms to identify 
individual co-specialists for all of the securities for which the firms 
will apply because, among other things, the firms may need to hire new 
co-specialists to trade the securities. To address these limited 
circumstances, the Exchange has proposed a change in its assignment 
rule that would allow the CSAE to make a temporary 30-day assignment to 
a specialist firm without the firm first identifying a particular co-
specialist to trade the securities. According to the Exchange, the 
assignment could not become final (and the firm could not begin trading 
the securities) unless: (1) The specialist firm, within 15 days of the 
temporary assignment, provides the CSAE with the identification of the 
individual co-specialist who will be trading the securities; and (2) 
the CSAE, after evaluating that co-specialist's demonstrated ability 
and experience, finds that the co-specialist is qualified to trade the 
securities. If the CSAE determines that the co-specialist is not 
qualified to trade the securities, the securities would be immediately 
posted for assignment to other specialist firms.
    The Exchange believes that the proposal is narrowly tailored to 
provide an efficient and effective process for assigning securities in 
those rare situations when a large number of securities must be 
assigned in a relatively short period of time. As an initial matter, 
the proposed rule change would apply only in instances where the CSAE 
is allocating more than 100 stocks at any specific time, a circumstance 
that has occurred rarely at the Exchange. Additionally, the proposal 
would not allow a specialist firm to begin trading a security until it 
had notified the CSAE of the individual co-specialist who would trade a 
security, and the CSAE had determined that that individual was 
qualified to do so. Finally, the proposal would require the CSAE to 
determine which specialist firm should trade securities based on 
criteria that are consistent with those set out in the Exchange's 
rules. In these cases, the CSAE would review a firm's overall 
demonstrated ability, experience and financial responsibility, as well 
as the overall best interests of the Exchange.\6\ The Exchange further 
represents that the best interests of the Exchange incorporates a 
variety of issues, including the issue of concentration of specialist 
assignments on the Exchange.\7\ The Exchange also believes that the 
CSAE should be cognizant of concentration issues and should allocate 
securities in a manner that, consistent with the other factors and 
requirements of the assignment process, minimizes concentration as much 
as possible.\8\
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    \6\ Under the Exchange's assignment rules, the CSAE ordinarily 
considers the demonstrated ability of the identified co-specialist, 
along with the firm's financial responsibility and the overall best 
interests of the Exchange. See Article XXX, Rule 1.01.III.1.
    \7\ Telephone conversation of August 26, 2005, between Ellen 
Neely, President and General Counsel, CHX and Hong-Anh Tran, Special 
Counsel, Division of Market Regulation, Commission.
    \8\ Id.

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[[Page 53827]]

2. Statutory Basis
    The CHX believes that the proposed rule change is consistent with 
the requirements of the Act and the rules and regulations thereunder 
that are applicable to a national securities exchange, and, in 
particular, with the requirements of Section 6(b) of the Act.\9\ In 
particular, the Exchange believes that the proposed change is 
consistent with Section 6(b)(5) of the Act,\10\ in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, protect investors and the public interest by 
allowing the Exchange to establish an effective and efficient process 
to permit the assignment of a large number of securities within a 
relatively short period of time.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were either solicited or received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-CHX-2005-23 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-CHX-2005-23. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the CHX. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-CHX-2005-23 and should be submitted on or before October 
3, 2005.

IV. Commission's Findings and Order Granting Accelerated Approval of a 
Proposed Rule Change

    The Commission has considered the Exchange's proposed rule change, 
and finds that the proposed rule change is consistent with Section 6(b) 
of the Act,\11\ and the rules and regulations thereunder applicable to 
a national securities exchange.\12\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\13\ 
which requires that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments and perfect the 
mechanisms of a free and open market and to protect investors and the 
public interest. The Exchange represents that it is currently 
considering the assignment of a large number of securities that are 
temporarily assigned to certain CHX specialist firms. The Exchange 
further represents that it needs to promptly make final assignment 
decisions for these securities. The Commission believes that the 
proposal should facilitate the ability of the Exchange to expeditiously 
assign a large number of securities (i.e., exceeding 100 securities) in 
a relatively short time frame in the rare circumstances it is necessary 
to do so, without compromising the overall interests of the assignment 
process.
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    \11\ 15 U.S.C. 78f(b).
    \12\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
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    Pursuant to Section 19(b)(2) of the Act,\14\ the Commission may not 
approve any proposed rule change prior to the thirtieth day after the 
date of publication of the notice of filing thereof, unless the 
Commission finds good cause for so doing. The Commission hereby finds 
good cause for approving the proposed rule change prior to the 
thirtieth day after publishing notice of filing thereof in the Federal 
Register. The Commission notes that the Exchange's assignment 
procedures, pursuant to Interpretation and Policy .01 of Rule 1 of 
Article XXX, generally requires that, during the application process, 
specialist firms identify the co-specialist (or co-specialists) whom 
the specialist firm believes will trade the securities. Because of the 
large number of securities that are available for allocation in this 
case, the Commission believes that the specialist firms might, in some 
cases, find it difficult to identify individual co-specialists for all 
of the securities for which they apply. The Commission believes that 
the proposed rule change is necessary to facilitate the orderly 
assignment of a large number of securities within a relatively short 
period of time. The Commission expects the Exchange to assign 
securities, on a 30-day temporary basis, to a particular specialist 
firm based on the firm's overall demonstrated ability, experience and 
financial responsibility, subject to the firm's identification (within 
15 days of the assignment) of the particular co-specialist(s) who will 
trade the securities and the Exchange CSAE's determination that the 
individual co-specialist(s) have the demonstrated ability and 
experience to trade the issues. In addition, the Commission notes that 
assignment could not become final and the firm could not begin trading 
securities allocated pursuant to the proposal unless the firm promptly 
provided the Exchange's CSAE with the name of the co-specialist, and 
the CSAE concluded that the co-specialist is qualified to trade the 
issues. Finally, the Commission expects the CSAE to be cognizant of the 
issue of concentration of specialist securities assignments on the 
Exchange, consistent with the representations of the Exchange

[[Page 53828]]

referenced above. For the reasons set forth above, the Commission finds 
good cause to accelerate approval of the proposed rule change pursuant 
to Section 19(b)(2) of the Act.\15\
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-CHX-2005-23) is hereby 
approved on an accelerated basis. 
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    \16\ Id.
    \17\ CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-4948 Filed 9-9-05; 8:45 am]
BILLING CODE 8010-01-P